Journal of Economic Psychology 33 (2012) 1129–1142

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Journal of Economic Psychology journal homepage: www.elsevier.com/locate/joep

The Big Five personality traits, material values, and financial well-being of self-described money managers Grant Donnelly a,⇑, Ravi Iyer b, Ryan T. Howell a a b

Department of Psychology, San Francisco State University, United States Department of Psychology, University of Southern California, United States

a r t i c l e

i n f o

Article history: Received 24 December 2011 Received in revised form 2 August 2012 Accepted 3 August 2012 Available online 14 August 2012 JEL Classification code: G02 PsycINFO Classification: 90 220 320 350

a b s t r a c t Previous research has linked personality traits, material values, and money management to savings, debt, and compulsive buying. To extend previous research, four online surveys examined the Big Five personality traits and material values of those who manage their money and determined the independent effects of money management on wealth, debt, and compulsive buying. Results suggest that (a) individuals who believe that material possessions can provide happiness manage their money less and (b) highly conscientious individuals manage their money more because they have positive financial attitudes as well as a future orientation. Further, money management is significantly related to increased savings, decreased debt, and less compulsive buying even after controlling for numerous socio-demographic and dispositional variables. In the Discussion we suggest that materialists may experience a ‘pain of knowing’ about their finances because money management may highlight the discouraging implications of their purchasing behavior. Ó 2012 Elsevier B.V. All rights reserved.

Keywords: Money management Conscientiousness Materialism Savings Debt

1. Introduction Over the past decade, millions of Americans have accumulated massive amounts of credit card debt accompanied by high interest rates, fees and fines. Credit card use in 2010 increased 50% from 2000 levels (US Census Bureau, 2010), with the average household carrying a debt balance of $10,678 (a 29% increase from 2000; see Chu & Acohido, 2008). As Americans have acquired more personal debt, the personal savings rate has declined from 8% in the 1980s to less than 4% in 2011 (US Department of Commerce: Bureau of Economic Analysis, 2011). Further, personal debt and decreased savings have impacted financial institutions, as a number of consumers took out adjustable rate mortgages with little to no money down, leading to massive foreclosures (Finke, Huston, Siman, & Corlija, 2005; Lang & Jagtiani, 2010). Thus, the dramatic shift in consumption over the last few years has had a devastating effect on individuals’ personal finances and the economy in general. It has been proposed that a lack of money management (i.e., the process of budgeting, saving, investing, spending, and otherwise overseeing the use of money; see Godwin & Koonce, 1992) may be a major factor in maladaptive consumption as the inability to manage money has been found to predict debt above and beyond the impact of poverty (Lea, Webley, & Walker, 1995). ⇑ Corresponding author. Address: San Francisco State University, 1600 Holloway Avenue, San Francisco, CA 4132, United States. Mobile: +1 415 235 1392. E-mail address: [email protected] (G. Donnelly). 0167-4870/$ - see front matter Ó 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.joep.2012.08.001

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In order to understand why some people do not manage their money, a number of studies have demonstrated that individual differences (Brandstatter, 1996; Brougham, Jacobs-Lawson, Hershey, & Trujillo, 2011; Warneryd, 1996) and financial values (Garoarsdottir & Dittmar, 2012; Walker, 1996; Watson, 2003) impact financial well-being. However, even as the Big Five personality traits are fundamental to understanding personality (John & Srivastava, 1999), research has not fully explored the Big Five personality profile of those who actively manage their money or the mechanisms through which Big Five personality traits impact money management. Also, while past research has suggested that money management is associated with less materialism (Garoarsdottir & Dittmar, 2012; Walker, 1996), these studies have not investigated the specific materialistic motivations (i.e., the importance of acquisition, striving for success, or the search for happiness) that lead to less money management. Finally, past research has not examined the independent effects of money management on financial well-being holding constant Big Five personality traits and materialism, leaving open the question of whether the root cause of financial well-being is the result of behavior (i.e., how individuals manage their money), personality traits, or the values that drive the pursuit of possessions (i.e., materialistic values). Thus, the goals of this study are (a) to predict money management tendencies from Big Five personality traits and the individual components of materialistic values to determine what traits and material values independently predict increased money management and (b) to assess the independent effect of money management on wealth accumulation, debt accumulation, and compulsive buying. 1.1. The predictors and benefits of money management The money management literature has primarily focused on the benefits of managing money. In addition to having less debt and more savings (Antonides, de Groot, & van Raaij, 2011; Chau, Chan, & Chan, 2004; Dowling, Corney, & Hoiles, 2009; Garoarsdottir & Dittmar, 2012; Kamleitner, Hornung, & Kirchler, 2011), individuals who successfully manage their money report more financial satisfaction (Dowling et al., 2009; Joo & Grable, 2004; Mugenda, Hira, & Fanslow, 1990; Parrotta & Johnson, 1998; Robb & Woodyard, 2011; Xiao, Sorhaindo, & Garman, 2006), less financial stress (Joo & Grable, 2004; Xiao et al., 2006), less compulsive buying (Garoarsdottir & Dittmar, 2012; Pham, Yap, & Dowling, 2012), and more overall life satisfaction (Xiao, Tang, & Shim, 2008). These benefits have produced an interest in knowing the predictors of active money management. The investigation of the antecedents of money management have included financial knowledge (Antonides et al., 2011; Chang, Sun, & Shen, 2010; Godwin & Carroll, 1986; Grable, Park, & Joo, 2009; Mugenda et al., 1990; Parrotta & Johnson, 1998; Perry & Morris, 2005; Robb & Woodyard, 2011), future time orientation (Antonides et al., 2011), risk tolerance (Joo & Grable, 2004), financial attitudes (Parrotta & Johnson, 1998), and locus of control (Chang et al., 2010; Grable et al., 2009). However, because it has been proposed that personality traits and values predict time management (Claessens, van Eerde, Rutte, & Roe, 2007), researchers have acknowledged the importance of determining the relations between personality traits and financial values with money management (Garoarsdottir & Dittmar, 2012; Parrotta & Johnson, 1998; Pham et al., 2012; Walker, 1996). 1.2. The Big Five personality predictors of money management Though past research has called for the investigation of specific Big Five personality traits (i.e., conscientiousness; emotional stability) and money management (Parrotta & Johnson, 1998; Pham et al., 2012), no study has examined these potential relations. Previous findings demonstrate that emotional instability (i.e., neuroticism) predicts more debt (Nyhus & Webley, 2001) and more instances of compulsive buying (Brougham et al., 2011; Dittmar, 2005; Mowen & Spears, 1999), while conscientiousness is linked to increased savings (Brandstatter, 1996; Warneryd, 1996), positive attitudes towards saving (Brandstatter, 2005), less instances of compulsive buying (Mowen & Spears, 1999), and never having been in debt (Webley & Nyhus, 2001). These results suggest that conscientious people have greater financial self-control, which has been found to predict both increased saving and decreased borrowing behavior (Warneryd, 1996). Considering these results, it seems likely that Big Five personality traits may have an independent relation with money management. However, past research has also suggested that financial attitudes and time orientation are related to personality traits (Brandstatter, 2005) and money management (Antonides et al., 2011; Parrotta & Johnson, 1998); these results suggest that Big Five personality traits may have an indirect (i.e., mediated) effect on money management. Therefore, we hope to determine if Big Five personality traits are related to money management, and if so, is this relation is direct or indirect. 1.3. The components of materialism and money management Previous studies have demonstrated that materialists are willing to take on greater levels of debt (Ponchio & Aranha, 2008; Watson, 2003), have more positive attitudes toward debt (Pinto, Parente, & Palmer, 2000; Pirog & Roberts, 2007), report a higher willingness to use installment credit (Watson, 2003), and make more compulsive purchases (Dittmar, 2005; Roberts, Manolis, & Tanner, 2003) than non-materialists. Not surprisingly then, individuals who use fewer money management strategies are typically more materialistic (Garoarsdottir & Dittmar, 2012; Walker, 1996). However, it is unclear why materialistic individuals are not managing their money. Their lack of money management could be due to the conviction that possessions indicate success, the extent to which the acquisition of material goods is a primary life goal, or the belief that material possessions can provide happiness. We hope to extend previous findings by investigating the relationship between money management and the individual components of materialism (i.e., acquisition centrality, acquisition as the pursuit of happiness, and possession-defined success), which may be differentially related to money management.

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1.4. The current research The current research seeks to determine the independent relationships between Big Five personality traits, material values, money management, and financial well-being. Study 1 determines the Big Five personality profile of those who manage their money. Study 2 attempts to replicate the effects of personality on money management while examining the independent effects of the components of material values on money management; Study 2 also examines the financial benefits of money management controlling for personality traits, materialistic values and other socio-demographic variables. Studies 3 and 4 add other covariates to these models to test their robustness and further clarify the independent relationships. 2. Study 1: money management and personality traits 2.1. Method 2.1.1. Participants Study 1 included 936 participants (MAge = 35.98, SD = 14.20; 51.6% male; 53.8% Caucasian), who visited YourMorals.org between June, 2009 and January, 2012 and completed our money management questionnaire (see Appendix A), and the Big Five Inventory (see John & Srivastava, 1999). We only included participants who provided their age, gender, and highest education level attained during their registration with the website. YourMorals.org is a data collection platform where participants over 18 years of age are invited to take part in any of 30–40 different studies and are given feedback about their morality, personality, and ideology. Participants usually find YourMorals.org through publicity about psychological research or by typing keywords related to morality into an internet search engine. 2.1.2. Measuring money management To assess money management, participants completed six Likert-style questions that measured participants sense of financial responsibility (e.g., ‘‘When I reflect on my past buying behavior, I have been most likely to over-spend’’ [reversecoded]) and the degree to which they monitor their financial accounts (e.g., ‘‘Some people strive for financial clarity: knowing account balances, monthly expenses, loan interest rates, fees and fines. To what extent does this characterization describe you?’’) on scales from 1 (not at all) to 7 (a great deal). The Cronbach’s alpha demonstrated that the money management scale (a = .85) was internally consistent, with all six items contributing to the reliability of the measure. 2.1.3. Results First, we determined the bivariate relationships between personality traits and self-reported money management. Two personality traits were strongly correlated with money management; conscientiousness was positively correlated with money management (r = .33, p < .001) and, neuroticism was negatively correlated with money management (r = .19, p < .001). We also found significant negative correlations between age and education with money management (rage = .07, p < .05; reducation = .13, p < .001), which suggests the need to control for demographic variables when predicting money management. Next, we conducted a two-step hierarchical regression analysis to determine the unique variance in money management explained by personality traits while controlling for demographic variables (see Table 1). For Step 1, we included demographic variables (i.e., age, gender, education), which together accounted for 2.1% of the variance in money management. In Step 2, personality traits accounted for an additional 12.8% of the variance in money management with conscientiousness, extraversion and neuroticism being the most important predictors in the model.

Table 1 Predicting money management from demographic variables and personality traits. Step 1

Age Gender (male = 1) Education Extraversion Agreeableness Conscientiousness Neuroticism Openness DR2 Model R2

Step 2

b

Sig.

.06 .06 .12

.17 .07 <.01

.021*** .021***

Sig.

b .00 .04 .08 .11 .06 .30 .14 .06 .128*** .149***

.94 .24 <.05 <.01 .07 <.01 <.01 .06

N = 936 Note: Personality traits were measured by the Big Five Inventory (John & Srivastava, 1999). Gender (female = 0; male = 1).  p < .05; p < .01. *** p < .001.

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2.1.4. Brief discussion These results suggest the importance of personality traits in predicting money management. However, past research suggests that materialism is also associated with less money management behavior (Garoarsdottir & Dittmar, 2012; Walker, 1996). Because of the significant relations found between individual differences and money management in Study 1, we investigated the relationship between money management, personality traits, and materialistic values in Study 2. Additionally, to determine the benefits of money management, we investigated the relationships between money management and financial outcomes (e.g., wealth, credit card debt, and compulsive buying), holding personality traits, materialistic values, and demographic variables constant. 3. Study 2: money management and material values 3.1. Method 3.1.1. Participants Study 2 included 993 students (MAge = 27.45, SD = 12.70; 72.5% female; 32.8% Caucasian) from either San Francisco State University or Old Dominion University. In exchange for participation, students received class credit. Originally 1079 students started the survey; thus, with 993 students completing the survey, our response rate was very high (92%). 3.1.2. Materials To assess money management, participants completed the same six items as in Study 1. The Cronbach’s alpha demonstrated good reliability (a = .76), with all six items contributing to the internal consistency of the questionnaire. Participants also completed: (a) the Big Five Mini Marker scale (Saucier, 1994) to measure personality; (b) the Material Values Scale (MVS; Richins & Dawson, 1992) to measure materialistic values; and (c) the Compulsive Buying Scale (CBS; Faber & O’Guinn, 1992) which measured compulsive buying. In this study we scored the three facets of the MVS to predict money management. The defining success (MVS-Success) sub-scales measures the degree to which a person regards possessions as indicators of success and achievement in life. The acquisition centrality (MVS-Centrality) sub-scale measures the extent to which the pursuit and acquisition of material goods is a primary life goal. The pursuit of happiness sub-scale (MVS-Happiness) measures the extent to which a person believes that material possessions can provide happiness. Finally, because self-reported saving and debt levels are common measurements in the money management literature (Antonides et al., 2011; Dew & Xiao, 2011; Garoarsdottir & Dittmar, 2012; Kamleitner et al., 2011), participants reported their age and gender (education was not measured as all students had attained the same level) as well as their current financial circumstance, which was measured with the proxy developed by Howell, Kurai, and Tam (2012); i.e., current income [‘‘What is your household income after taxes are taken out?’’], savings [‘‘What is the amount in all your savings and money market accounts?’’], investments [‘‘What is the value of all your investments (such as CD, stocks, or bonds)?’’], credit card debt levels [‘‘What is the balance on all your credit cards?’’ and ‘‘During the past year, how many of your credit cards have carried half or more of the maximum balance?’’]). Following the procedures by Howell et al., the first three items are scored to measure wealth accumulation and the last two items are used to measure current debt levels. 3.2. Results 3.2.1. Measuring and predicting money management First, we conducted a two-step hierarchical regression analysis to determine the unique variance in money management explained by personality traits and materialistic values while controlling for age and gender (see Table 2). For Step 1, we include demographic variables (i.e., age and gender), which together accounted for less than 1% of the variance in money management. In Step 2, personality traits and material values accounted for an additional 19.3% of the variance in money management. Those who actively managed their money tended to be more conscientious, less materialistic (both in their pursuit of happiness and the goal to acquire material goods), and slightly more agreeable. Next, we investigated the independent effect of money management (controlling for personality traits, materialistic values, and demographic variables) to predict (a) wealth accumulation (i.e., income, personal savings, and investments), (b) debt accumulation (i.e., credit card balance and number of maxed credit cards), and (c) compulsive buying (i.e., CBS; Faber & O’Guinn, 1992; see Table 3). First, and most importantly, money management was the strongest predictor of decreased credit card debt and compulsive buying. Those who actively manage their money also had significantly higher levels of wealth (with only age being a stronger predictor). Interestingly, personality traits had mostly small relations with wealth, debt, and compulsive buying. Though, at least one of the three dimensions of materialistic values had a relation to wealth, debt, and compulsive buying. 3.2.2. Brief discussion These results suggest that specific material values, believing that material values are central and will lead to happiness, and the personality trait of conscientiousness are most important in predicting money management. In Study 3, we attempt to replicate these regression models using both our scale and a money management scale (i.e., the Financial Management Behavior Scale; Dew & Xiao, 2011) that was developed using a nationally representative sample. Further, because it has been suggested that education and marital status may have an impact on money management (Godwin & Carroll, 1986; Joo & Grable, 2004; Robb & Woodyard, 2011; Xiao et al., 2006) we include these variables in our regression models.

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G. Donnelly et al. / Journal of Economic Psychology 33 (2012) 1129–1142 Table 2 Predicting money management from demographic variables, personality traits, and materialistic values. Step 1

Age Gender (male = 1) Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness DR2 Model R2

Step 2 Sig.

b .01 .02

Sig.

b

.70 .65

.10 .01 .05 .07 .29 .05 .01 .03 .17 .09 .193*** .194***

.001 .001

<.01 .73 .17 <.05 <.01 .16 .82 .41 <.01 <.05

Note: Personality traits were measured using the Big Five Mini Marker scale (Saucier, 1994). MVS – success = material values scale possession defined success sub-scale; MVS-Centrality = material values scale possession centrality sub-scale; MVS-Happiness = material values scale acquisition as the pursuit of happiness sub-scale. N = 993.  p < .05; p < .01. *** p < .001.

Table 3 Predicting wealth accumulation, credit card debt and compulsive buying from money management, demographic variables, materialistic values, and personality (Study 2).

Variable Age Gender (male = 1) Money management Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness

Wealth accumulation b .42*** .06* .23*** .00 .01 .03 .05 .01 .06 .07* .14***

Credit card debt b .17*** .01 .29*** .00 .02 .14*** .01 .08* .07 .07 .09*

Compulsive buying b .08** .10*** .54*** .05* .09* .01 .09* .03 .06 .12*** .05

Note: The model was significant in predicting wealth accumulation, (F[11, 969] = 36.02, p < .001; R2 = .29). The model was significant in predicting credit card debt, (F[11, 976] = 14.11, p < .001; R2 = .14). The model was significant in predicting compulsive buying, (F[11, 981] = 84.08, p < .001; R2 = .48). N = 993. * p < .05 ** p < .01 *** p < .001.

4. Study 3: testing the generalizability of the money management models 4.1. Method 4.1.1. Participants Study 3 included 355 participants (MAge = 33.42, SD = 13.77; 70.2% female; 65.2% Caucasian) who were either students from San Francisco State University or were recruited on social media websites (e.g., Craigslist, Facebook). In exchange for participation, students received class credit while non-students volunteered. Originally 831 participants started the survey; thus, our response rate was 42.7%. 4.1.2. Materials To assess money management, participants completed the Financial Management Behavioral Scale (Dew & Xiao, 2011 a = .82; very similar to the original study [a = .81]) in addition to our money management measure (a = .75). These two scales were positively correlated (r = .55, p < .001). Participants also completed: (a) the Big Five Inventory (BFI-10; Rammstedt & John, 2007) to measure personality, (b) the Material Values Scale (MVS-15; Richins, 2004) to measure materialistic values, and (c) the Compulsive Buying Scale (CBS; Faber & O’Guinn, 1992). Participants reported their age, gender, education, their current relationship status (e.g., married, divorced, never married, or in a domestic partnership) as well as their current economic standing using the five-item proxy developed by Howell et al. (2012) that was used in Study 2.

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G. Donnelly et al. / Journal of Economic Psychology 33 (2012) 1129–1142 Table 4 Predicting money management from demographic variables, personality traits and materialistic values. Step 1

Age Gender (male = 1) Education In a current relationship Not in a current relationship Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness DR2 Model R2

Step 2 Sig.

b .05 .07 .11 .11 .02

Sig.

b

.50 .23 .08 .08 .76

.03 .03 .08 .04 .02 .15 .02 .20 .10 .03 .08 .11 .20 .110*** .157***

.046** .046**

.70 .52 .15 .54 .80 <.01 .74 <.01 .09 .53 .24 .09 <.01



p < .05. p < .01 *** p < .001. N = 355. **

4.1.3. Results Replicating the analytic plan from Study 2, we conducted hierarchical regression analyses to determine the unique variance in money management and financial management behavior explained by personality traits and materialistic values while controlling for age, gender, education, and marital status [Table 4 displays the regression coefficients for money management as the outcome and Table 5 displays the regression coefficients for financial management behavior (Dew & Xiao, 2011) as the outcome]. When predicting money management, for Step 1, we include demographic variables (i.e., age, gender), which together accounted for 4.6% of the variance in money management. In Step 2, personality traits and material values accounted for an additional 11% of the variance. When predicting financial management behavior, demographic variables explained 26.5% of the variance; personality traits and material values accounted for an additional 6.7% of the variance. Specifically, extraversion, conscientiousness and the extent to which a person believes that material possessions can provide happiness are significant predictors of money management and financial management behavior. Next, we investigated the independent effects of money management and financial management behavior (controlling for personality traits, materialistic values, and demographic variables) to predict (a) wealth accumulation, (b) debt accumulation, and (c) compulsive buying (see Table 6). Because of the similarity between the regression models when using money management or financial management behavior, and because of the high correlation between the two constructs, we aggregated the two money management constructs. In all three regression models, money management was a significant

Table 5 Predicting financial management from demographic variables, personality traits and materialistic values. Step 1

Age Gender (male = 1) Education In a current relationship Not in a current relationship Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness DR2 Model R2 

p < .05. p < .01 p < .001. N = 355.

**

***

Step 2 Sig.

b .27 .01 .18 .21 .02

.265** .265**

<.01 .84 <.01 <.01 .74

Sig.

b .21 .02 .19 .16 .02 .15 .03 .19 .06 .09 .05 .04 .15 .067*** .333***

<.01 .73 <.01 <.01 .69 <.01 .57 <.01 .25 .08 .43 .48 <.05

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Table 6 Predicting wealth accumulation, credit card debt and compulsive buying from money and financial management, demographic variables, materialistic values, and personality. Variable

b Wealth accumulation

Age Gender (male = 1) Education Current relationship No relationship Money management Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness

***

.36 .02 .18*** .02 .10* .48*** .01 .02 .04 .02 .06 .02 .01 .04

Credit card debt .10 .02 .12* .11 .12* .37*** .04 .01 .09 .06 .02 .10 .01 .05

Compulsive buying .08 .05 .04 .01 .02 .43*** .03 .04 .02 .07 .08 .18** .05 .11

Note: The model was significant in predicting wealth accumulation, (F[14, 325] = 27.26, p < .001; R2 = .54). The model was significant in predicting credit card debt, (F[14, 324] = 4.28, p < .001; R2 = .16). The model was significant in predicting compulsive buying, (F[14, 326] = 12.79, p < .001; R2 = .36). N = 355. * p < .05 ** p < .01 *** p < .001.

predictor of increased wealth, as well as decreased debt and compulsive buying. Also, in all three models, money management was the strongest predictor of the financial outcomes. 4.1.4. Brief discussion When we examine the results from Study 2 and Study 3, there are two consistent results—those who actively manage their money tend to be more conscientious and less materialistic in their pursuit of happiness. To test the robustness of these relations in a materially different sample and control for further possible extraneous variables, in Study 4 we attempt to confirm these regression models on an adult sample while controlling for future orientation, locus of control, financial attitudes, risk tolerance, and financial knowledge. We also examined the possibility that these attitudes and dispositions explained why conscientious and less materialistic people managed their money. 5. Study 4: testing the robustness of the money management models 5.1. Participants To achieve more age, gender, and income diversity than is typically expected with a student sample, Study 4 recruited 201 adults (MAge = 34.93, SD = 12.51; 65.8% female; 71.8% Caucasian) from Amazon Mechanical Turk (MTurk), which is a webbased application that provides instant access to potential participants for survey-based psychological research. Data collected via MTurk is as reliable as laboratory data (Buhrmester, Kwang, & Gosling, 2011). Participants were paid 20 cents for their participation in the study. Originally 211 adults started the survey; thus, with 201 adults completing the survey, our response rate was very high (95.3%). 5.2. Materials To assess money management, participants completed the Financial Management Behavioral Scale (Dew & Xiao, 2011

a = .81) in addition to our money management measure (a = .75). These two scales were positively correlated (r = .60, p < .001). Participants also completed: (a) the Big Five Inventory (BFI-10; Rammstedt & John, 2007) to measure personality, (b) the Material Values Scale (MVS-15; Richins, 2004) to measure materialistic values, (c) the Compulsive Buying Scale (CBS; Faber & O’Guinn, 1992) which measured an individual’s tendency to compulsively purchase, (d) the Financial Products Knowledge Scale (Antonides et al., 2011) to measure financial knowledge, (e) the Financial Risk Tolerance Scale (Grable, 2000) to measure risk tolerance, (f) a brief measure of Zimbardo’s Time Perspective Scale (ZTPI-Brief; Zhang, Howell, & Bowerman, 2012) was used to measure future time orientation, (g) the Financial Attitude Scale (Parrotta & Johnson, 1998) to measure financial attitudes and (h) locus of control was measured using the Locus of Control Scale (Rotter, 1975). Participants reported their age, gender, education, their current relationship status (e.g., married, divorced, never married or in a domestic partnership) as well as their current economic standing using the five-item proxy developed by Howell et al. (2012) and used in Study 2 and Study 3.

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Table 7 Predicting money management from demographic variables, personality traits, materialistic values, financial knowledge, future orientation, locus of control, risk tolerance and financial attitudes. Step 1

Age Gender (male = 1) Education In a current relationship Not in a current relationship Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness Financial knowledge Future orientation External locus of control Risk tolerance Positive financial attitudes DR2 Model R2

Step 2 Sig.

b .06 .11 .18 .08 .04

.053 .053

.42 .14 <.05 .31 .59

Step 3 Sig.

b .14 .10 .15 .08 .06 .11 .11 .16 .14 .08 .15 .05 .31

.126** .179***

.08 .18 <.05 .32 .46 .14 .13 <.05 .06 .21 .15 .64 <.01

Sig.

b .17 .04 .13 .05 .05 .12 .13 .06 .12 .10 .12 .05 .24 .08 .14 .08 .02 .18 .073** .252***

<.05 .54 .06 .53 .53 .11 .06 .45 .14 .15 .27 .58 <.01 .31 .10 .42 .84 <.01



p < .05 p < .01 p < .001. N = 196.

**

***

5.3. Results First, we conducted two three-step hierarchical regression analyses to determine the unique variance in money management explained by personality traits and materialistic values while controlling for demographic variables [which replicates the models from Study 3; Table 7 displays the regression coefficients for money management as the outcome and Table 8 display the regression coefficients for financial management behavior (Dew & Xiao, 2011) as the outcome]. We also examined if these relations hold when controlling for numerous possible confounds (i.e., financial knowledge, future orientation, external locus of control, low risk tolerance, and positive financial attitudes) in Step 3. When predicting money management (a) demographic variables explained 5.3% (though non-significant) of the variance in money management and (b) personality traits and material values accounted for an additional 12.6% of the variance. When predicting financial management behavior, demographic variables explained 17% of the variance; personality traits and material values accounted for an additional 7.0% of the variance. When examining the significant predictors from Step 2, the only significant predictors across both models were (a) education and conscientiousness increased money management, while (b) believing that material possessions can provide happiness decreased money management. These patterns are fairly consistent with the results from Study 3. However, though believing that material possessions can provide happiness was related to decreased money management and financial behavior management in Step 3, conscientiousness no longer was a significant predictor. This indicates that these additional financial predictors may by mediating the relation between conscientiousness and money management. To test for mediation, Baron and Kenny’s approach was used (1986) and mediation was tested using the Preacher and Hayes (2008) multiple mediation script with (a) conscientiousness as the predictor, (b) financial knowledge, future orientation, external locus of control, low risk tolerance, and positive financial attitudes as the mediators, and (c) money management or financial management behavior as the outcome. In both mediation models, conscientiousness was related to more positive financial attitudes and increased future orientation and these two mediators were significantly related to both money management and financial behavior management. The bootstrap results demonstrated the statistical significance of the indirect paths through both financial attitudes and future orientation. Thus, the mediation models suggests that highly conscientiousness individuals have both positive financial attitudes as well as a future orientation and this attitude and time perspective explains why conscientiousness individuals are more likely to manage their money. Finally, we tested the independent effects of an aggregate money management variable (the average of our scale and the financial management behavior scale) in predicting (a) wealth accumulation, (b) debt accumulation, and (c) compulsive buying (see Table 9). Following the same pattern as in Study 2 and 3, even though we controlled for demographic variables, personality traits, material values, and a host of other financial predictors in all three regression models, money management was the strongest predictor of the three financial outcomes.

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Table 8 Predicting financial management behavior from demographic variables, personality traits, materialistic values, financial knowledge, future orientation, locus of control, risk tolerance and financial attitudes. Step 1

Age Gender (male = 1) Education In a current relationship Not in a current relationship Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness Financial knowledge Future orientation External locus of control Risk tolerance Positive financial attitudes DR2 Model R2

Step 2

b

Sig.

.05 .02 .30 .29 .01

.49 .75 <.01 <.01 .92

.170*** .170***

Step 3 Sig.

b .03 .04 .26 .27 .03 .08 .07 .15 .04 .01 .21 .01 .26

.73 .58 <.01 <.01 .77 .26 .29 <.05 .58 .89 <.05 .90 <.01

.070* .239***

Sig.

b .01 .07 .21 .24 .03 .10 .06 .05 .01 .03 .15 .02 .18 .24 .11 .07 .04 .11 .099*** .338***

.91 .29 <.01 <.01 .73 .18 .32 .45 .90 .44 .14 .82 <.05 <.01 .17 .46 .60 .12



p < .01. p < .05 p < .001. N = 196. *

***

Table 9 Predicting wealth accumulation, credit card debt and compulsive buying from money and financial management, demographic variables, materialistic values, and personality. Variable

b Wealth accumulation

Age Gender (male = 1) Education Current relationship No relationship Money management Extraversion Agreeableness Conscientiousness Neuroticism Openness MVS-Success MVS-Centrality MVS-Happiness Financial knowledge Future orientation External locus of control Risk tolerance Positive financial attitudes

.14 .02 .04 .02 .05 .63 .07 .05 .03 .06 .12 .27 .09 .06 .02 .08 .09 .13 .01

Credit card debt .19 .06 .17 .21 .05 .23 .08 .03 .01 .05 .02 .05 .01 .13 .04 .13 .20 .20 .11

Compulsive buying .07 .09 .01 .18 .03 .49 .15 .01 .04 .03 .06 .09 .13 .02 .18 .02 .18 .04 .13

Note: The model was significant in predicting wealth accumulation, (F[19, 175] = 9.94, p < .001; R2 = .52). The model was significant in predicting credit card debt, (F[19, 176] = 2.57, p < .01; R2 = .22). The model was significant in predicting compulsive buying, (F[19, 177] = 6.72, p < .001; R2 = .42). N = 196.

6. General discussion The goals of the current studies were to predict money management tendencies from Big Five personality traits and materialistic values and to assess the independent effects of money management on wealth accumulation, debt accumulation, and compulsive buying. Across four studies using varied samples, we show that the extent to which a person believes that material possessions provide happiness has a strong negative relation to money management, and that conscientiousness predicts improved money management because highly conscientious people have more positive financial attitudes and a

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future time perspective. Additionally, money management was consistently a significant predictor of wealth, debt accumulation, and compulsive buying. 6.1. Why do conscientiousness people manage their money? Although no past research has examined the relation between Big Five personality traits and money management, studies have suggested that conscientiousness should be related to money management because conscientious people have more financial self-control (Brandstatter, 1996; Warneryd, 1996; Webley & Nyhus, 2001). Our first three studies confirmed that conscientiousness is the most important Big Five personality trait when predicting money management (even when controlling for demographic variables). In addition, Study 4 suggests why conscientiousness is related to money management. Our mediation models suggest that financial attitudes and future orientation mediate the conscientiousness—money management relation. This finding is consistent with previous research, which has found that conscientiousness has been linked to positive financial attitudes (Brandstatter, 2005) which increased money management (Parrotta & Johnson, 1998; Pham et al., 2012); financial attitudes also mediate the relation between conscientiousness and saving behavior (Brandstatter, 2005). Further, our mediation models extend previous findings that have demonstrated a relation between money management and future orientation (Antonides et al., 2011). Thus, these models extend past work by suggesting that conscientiousness individuals have increased money management because of their positive financial attitudes and future orientation. 6.2. Why do materialists not manage their money? Although past studies demonstrate that materialism is associated with poorer financial management practices (Garoarsdottir & Dittmar, 2012; Walker, 1996), these studies do not explain why materialists are not managing their money. We demonstrate that a specific facet of materialism (believing that material possessions can provide happiness) is a consistent driving force behind the negative impact material values has on money management. Interestingly, none of the five attitudinal or dispositional variables measured in Study 4 (future orientation, locus of control, financial attitudes, risk tolerance, and financial knowledge) mediated the relation between materialism and money management. However, escape theory (a causal chain of motivations to escape from aversive self-awareness; see Baumeister, 1990) may explain why materialists’ pursuit of happiness through material consumption may lead to less money management. Escape theory predicts that, when individuals fall short of their own standards and expectations, and become aware of these inadequacies, they experience negative affect. They then cope with these negative emotions by avoiding meaningful self-awareness and this leads to irrational behavior. So how does escape theory predict materialists’ poor money management skills? Future research should examine these relationships directly, but materialists may fall short of their standards and expectations because they reference themselves against people from higher socioeconomic backgrounds (Richins & Dawson, 1992) and have unrealistically high standards (Sirgy, 1998). It has been proposed they are aware of this gap between their ideal (e.g., high standards) and real self and this awareness may explain why materialists are less satisfied with life (Garoarsdottir, Dittmar, & Aspinall, 2009; Otero-Lopez, Pol, Bolano, & Marino, 2011), more depressed (Norris & Larsen, 2011), stressed (Burroughs & Rindfleisch, 2002), anxious (Kashdan & Breen, 2007), and have lower self-esteem (Richins & Dawson, 1992). Not surprisingly, materialists’ dissatisfaction with their life and their value system results in the pursuit of happiness through material possessions (Richins & Dawson, 1992) as they attempt to reduce the discrepancy between their real and ideal selves by making irrational financial decisions (Dittmar, 2005; Richins, 2011). Thus, materialists may avoid meaningful self-monitoring of their finances because self-awareness of one’s current financial situation may encourage restraint from the acquisition of the material items they feel will reduce the discrepancy between their real and ideal selves. Also, because materialists experience pleasure from material purchases (Rook, 1987) and are more likely to avoid negative thoughts, feelings, and sensations (Kashdan & Breen, 2007), they may experience a ‘pain of knowing’ about their finances because such awareness may highlight how the financial implications of their purchasing behavior is rather discouraging (Garoarsdottir & Dittmar, 2012). 6.3. The importance of money management on financial well-being Our results suggest that money management (not Big Five personality and materialistic values) is the most significant predictor of financial well-being. These results hold true even when controlling for a variety of demographic and dispositional variables. Our results challenge previous findings that suggests materialism is a stronger predictor of debt than money management skills (Garoarsdottir & Dittmar, 2012), however our studies do confirm that the pursuit of happiness through materialistic values is an important predictor money management, which has an important impact on financial well-being. A possible explanation for the discrepancy in findings is that Garoarsdottir & Dittmar’s debt measure included mortgage debt and auto loans, where our studies focused purely on credit card debt. 6.4. Limitations and future directions It is possible that self-reported financial behavior may not equate to actual financial management behavior. Though a number of previous studies have measured self-reported money management behaviors and correlated these self-reports

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with various financial, well-being, and demographic predictors and outcomes (Antonides et al., 2011; Chang et al., 2010; Chau et al., 2004; Dowling et al., 2009; Godwin & Carroll, 1986; Godwin & Koonce, 1992; Grable et al., 2009; Joo & Grable, 2004; Kamleitner et al., 2011; Lea et al., 1995; Mugenda et al., 1990; Parrotta & Johnson, 1998; Perry & Morris, 2005; Walker, 1996; Webley & Nyhus, 2001; Xiao et al., 2006, 2008), future studies should investigate alternative measures of financial management (e.g., financial account activity or surveying assessments from other informants [i.e., close relatives, spouses, children, or credit card companies]) to ensure our findings are not the result of self-presentation bias. Another limitation is the use of a convenience sampling strategy. Future research should extend these findings by recruiting a stratified sample (e.g., stratified on age, gender, and SES). However, it is important to note that, the goal of this study was not to determine the mean values of the population, but rather to determine the relationships between specific variables of interest. Also, as our goal was to determine the benefits and predictors of money management, it is encouraging that our models demonstrate the same relationships across four samples that vary in age, geography, education, and perhaps most importantly, in recruitment methodology. While none of these samples are free from self-selection bias, the type of selfselection bias in each recruitment technique varied as some participants were intrinsically interested in learning about themselves (Study 1), while others were motivated purely by financial gain (Study 4). Research has also shown that internet samples, used in these four studies, are more likely than telephone samples to give truthful data about sensitive topics like finances (Gosling, Vazire, Srivastava, & John, 2004). Finally, our samples consisted of participants living in the United States, surveyed via the internet during a specific time period, and may not be generalizable to other cultures, time periods, or to individuals who do not have internet access. Because our samples were recruited via the internet, our samples tended to be younger, and better educated than the population at large. While this reduces the variability in our population, increasing the chances that the variables of interest are directly related, it also reduces the generalizability of our results to unrepresented groups. It is an open question as to whether our results would hold for older and less educated groups, and we encourage future researchers to test these models in different cultures/groups to ensure the generalizability of these findings. As well, our data was collected following the financial collapse of 2008 (Lang & Jagtiani, 2010), which may have impacted the money management behaviors of our participants. Future researchers may want to examine whether these relationships hold during periods where the economy is perceived to be doing well. 9. Conclusion Many Americans are facing high levels of debt that may be the result of poor money management and detrimental consumption behaviors. Our results imply that in order to minimize debt accumulation and overspending we must increase money management skills. It seems though, that at least in part, a lack of money management is fueled by reduced conscientiousness and increased belief that material things can lead to happiness. We hope that the current findings help illuminate the psychological barriers towards money management that exist for individuals, especially those striving for happiness through material consumption. Appendix A. Instructions: please select the option that best describes you Money Management MM1 MM2 MM3 MM4

MM5

MM6

Think about last month: When I reflect on my past buying behavior, I have been most likely to: (1) Over Save to (7) Over Spend Think about last month: In order to be happy, I tried to: (1) Save my money to (7) Spend more than I make Think about your life in general: I would say that I typically spend more money than I have: (1) Infrequently to (7) All the time Some people are unclear about their financial situation: not knowing account balances, monthly expenses, loan interest rates, fees and fines and have difficulty meeting basic financial or personal obligations. They have a tendency to live paycheck to paycheck and have a ‘live for today, don’t worry about tomorrow’ attitude toward their money. They are frequently ‘borrowing’ items or small amounts of money from friends and failing to return them. To which extent does this characterization describe you? (1) Not at all to (7) A great deal Some people have financial clarity: knowing exact account balances, monthly expenses, loan interest rates, fees and fines, and live below their means. They have a tendency to save large portions of their paychecks often denying themselves of comforts in their daily lives, and feel defined by their savings account balances. They are often planning for future events. To which extent does this characterization describe you? (1) Not at all to (7) A great deal Some people strive for financial clarity: knowing account balances, monthly expenses, loan interest rates, fees and fines. To which extent does this characterization describe you? (1) Not at all to (7) A great deal

Note: MM1, MM2, MM3 and MM4 are reverse coded. All items contribute to the internal consistency of the factor and demonstrate adequate stability.

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Appendix B. Correlation matrix of all variables (Study 4)

M

SD

1. Money 4.73 1.03 management 2. FMBS 3.37 0.76 3. Male N/A N/A 4. Age 33.42 13.76 5. Education 5.63 1.05 6. MVS-Happy 2.60 0.85 7. MVS-Success 2.41 0.84 8. MVS-Centrality 2.72 0.72 9. Extraversion 3.23 0.99 10. Agreeableness 3.47 0.91 11. Conscien3.84 0.86 tiousness 12. Neuroticism 2.90 1.04 13. Openness 3.71 0.95 14. Financial 2.84 1.00 knowledge 15. Wealth 4.05 2.12 accumulation 16. Debt accumulation 2.07 1.21 17. Compulsive 1.79 0.62 buying

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

– .55 0.06 .13 .16 .27 .15 .19 0.07 0.05 .26

– 0.03 .44 .34 .32 .16 0.08 0.06 0.01 .33

– 0.02 .12 0.06 0.06 0.06 0.05 0.01 .17

12 0.01 .29

.12 0.00 .44

0.09 0.02 0.09





0.01

.52

.43

.14 .41

0.04 0.01

0.10 .16

0.06 .22

.40

.31 .46

.68

– .40 .32 .17 0.02 0.02 0.02 .27

– .23 .18 0.10 0.07 0.07 .23

– .55 .43 .12 .10 .25

– .56 0.00 0.05 .25

– 0.06 0.05 .15

.12 .20 .31

0.05 .26 .12

.24 0.04 .23

.15 .14 0.05

.12 0.02 .10









.33

.11 .37

.15

0.10 .36

– 0.07 .14 .21 .11 .14

– 0.09 .19 0.00 0.04

– .14 .12 .15 

0.08

0.03

0.05

.22

0.09 .27

0.03 0.03

0.02 0.08

0.03 .20

– 0.09 .19

– 0.02

0.07

0.06

0.00 .17

0.01 .11

– .33 – 0.06 0.09

.10 – .41 .38

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